SEC Charged EtherDelta’s Founder with $388,000 Fine
The Securities and Exchange Commission (SEC) today announced resolved charges toward Zachary Coburn, the creator of EtherDelta, one of the first digital “token” decentralized exchanges. It’ an important milestone for the industry since its the SEC’s first enforcement activity based on findings that such a company acted as an unregistered national securities exchange.
Without confirming or denying the findings, Coburn agreed to the order and accepted the fees of $300,000 in disgorgement, $75,000 penalty and $13,000 in prejudgment interest. The Commission’s order acknowledges Coburn’s cooperation, which the Commission weighed in determining not to command a more significant penalty.
According to the SEC’s rule, EtherDelta is a platform for ERC20 tokens trading. Those are the tokens commonly issued in Initial Coin Offerings (ICOs) using Ethereum blockchain. The order determined that Coburn was the one decided that EtherDelta will operate as an unregistered securities exchange.
We know that EtherDelta security sucked and the exchange was hacked on numerous occasions. Including that one time during crypto-gold rush back in December 2017 when 308 ETH were stolen from the exchange users as well as large numbers of tokens. Most of which will worth 5-10 times more in a matter of a couple of weeks. But it still feels like the end of the epoch – many retail traders made small fortunes with all those small, yet to be discovered, crypto asset. But I am pretty sure it’s for the best.
Over an 18-month period, EtherDelta’s users performed more than 3.6 million orders, including tokens that are defined as securities under the federal securities laws. Nearly all of the orders executed through EtherDelta were traded after the issuance of 2017 DAO Report, which concluded that some digital assets, e.g., DAO tokens, were securities and that exchanges that allowed trading of these securities would be a subject for registration by SEC. EtherDelta allowed trading of various digital asset securities and didn’t manage to obtain the necessary certification or operate under an exemption.
The SEC has previously conducted enforcement actions toward to unregistered broker-dealers and ICOs, including some of the tokens traded on EtherDelta.
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